LONDON (Dow Jones)--Agricultural commodities are expected to outperform metals and oil in 2009, benefitting from a secure demand outlook and tight supplies, after the dust settles from the selloff across commodities triggered by the global financial crisis.

Unlike oil and metals, agriculture is more resilient in an economic downturn; regardless of the gloomy macroeconomic outlook, people still need to eat.

"Demand for agricultural commodities tends to be less elastic, less responsive to economic factors, more responsive to population," said Lawrence Eagles, a commodities analyst at JPMorgan.

But tight credit markets and lower agricultural commodity prices could mean farmers will struggle to finance food production to meet growing demand, pushing prices upwards.

"You have to have funding available, you have to have trade," Eagles said.

Scarce and expensive credit is hindering farmers' ability to borrow, which could delay expansion plans and cause cuts to fertilizer use, resulting in smaller crops.

"Agricultural commodities are best placed to outperform: funding issues, high fertilizer costs and low stocks create yield and planting risks, while weather is an ever-present variable," said JPMorgan in its 2009 Commodities Outlook report.

After a roaring start to the year, most agricultural commodity prices have roughly halved in recent months, acting as a disincentive for farmers to invest in production.

The already tight supply outlook for wheat will be compounded by the 2009 world harvested area being expected to contract by around 1.6% as a result of smaller plantings, while consumption is expected to rise by 3.6%, according to the International Grains Council.

Cocoa, coffee and sugar are all close to having balanced supply and demand, leaving the markets vulnerable to any supply shocks over the coming year, with minimal buffer stocks available.

Analysts are already saying that the world could run out of coffee, were 2009 to be a bad crop year.

"Production destruction should be quite severe," said Shawn Hackett, President of Hackett Financial Advisors.

"With frozen credit, inputs like fertilizer and insecticide will not be bought and applied, (coffee) trees will not be cared for as fewer workers will be hired and acreage expansion and tree rejuvenation programs will be put on hold," he said.

Input costs including fuel and fertilizer, soared during the first half of the year, triggering more sparing application of fertilizer in particular.

While these costs are now falling, they're not falling as fast as commodity prices.

Already Brazil, one of the world's largest exporters of agricultural goods, has seen a dramatic fall in its farmers' use of fertilizer.

Brazilian fertilizer deliveries were down 35.5% in October compared with the same month in 2007, according to the National Association of Fertilizer Distributors.

Reduced fertilizer application will likely shrink yields; as a result, downward revisions to world production of many foodstuffs are expected next year.

Low stocks and fears of future price spikes, as seen earlier this year, are also likely to support the market, as governments act to ensure higher inventory levels.

"We've had a number of food scares which may encourage countries to build stocks," Eagles said.

However, with confidence in capital markets plummeting in the wake of the demise of some of the world's largest banks, the agricultural markets may yet fall further, before staging a recovery.

The strength of the U.S. dollar has been weighing on the prospects for US export demand next year, putting downward pressure on grain prices and other dollar-priced commodities.

While some analysts have said the dollar has peaked in the past week, Macquarie Bank said it expected the dollar to continue to strengthen in the short term, keeping downward pressure on agricultural commodity prices.

Fund activity is also expected to influence the direction of the markets. Forced liquidations and redemptions have caused funds to bail out of commodities in recent months, with a lack of fresh interest in such uncertain times.

According to a report published by asset manager and research company Bernstein, the markets are only half way through the hedge fund deleveraging process.

The DJ AIG commodity index has fallen almost 50% since its peak in July and, if Bernstein's estimate is correct, it could still fall further.

Eagles isn't convinced, saying there's great potential for agricultural commodities to lead the way in a commodity market rebound.

"Prices are not going to be dictated by funds and fund flows next year, it's going to be about the availability of trade finance and demand and supply," said Eagles.

-By Sarah McFarlane, Dow Jones Newswires; +44 (0)20 7842 9327; sarah.mcfarlane@dowjones.com